Ram : I want to start an SIP of Rs. 10k in five different mutual funds of Rs.2k each.
Shyam : Why five funds?
Ram : As Warren Buffet says.. Never put all your eggs in one basket.
Shyam : That’s true but in other sense. Here the basket is Asset Class meaning Gold, Real estate, Equity and Bank FD.
Tell me your home loan and salary details.
Ram : My salary is 1 lakh and my EMI is Rs. 50k. I took a 52 lakh loan for a 75 lakh home, 3 years ago.
Shyam : And what are your current monthly expenses?
Ram : 30k and now I can invest 10k as my car loan EMI is over.
Shyam : So you are paying EMI of 50k (House) + 10k (car) = 60k.
And now you want to start an SIP instead of EMI. But have you checked, how much % of your salary goes towards your home loan after taking care of your monthly expenses of 30k?
Ram : Around 70%
Shyam : That’s my worry, you are putting all your eggs in one basket (Real Estate – Home)
Ram : But I’m also saving on taxes.
Shyam : Oh..saving on taxes? Only 2 lakh interest on home loan (30% tax bracket – Rs. 60k is saved in a year)
Ram : Yes.
Shyam : But have you considered the cost of interest on your home loan. Your EMI is 50k for 20 years. Meaning 50 x 12 x 20 = 1.2 crore against yr loan of Rs. 52 lakh.
1.2 crore – 52 lakh = 68 lakh interest for 20 years almost 3.4 lakh interest per annum for saving tax of 60k per annum. Your loss is 3.4 lakh – 60k = 2.8 lakh per annum. (Interest)
Ram : OMG. 😱😱
Really? Nobody told me about this.
Shyam: And yes.. If you invest that 50k per month in SIP for 20 years @ 12% CAGR, you will get around 5 cr.
Ram : 😟😢😰 Oh..why did I purchase a second house?
Ram : What about the 22 lakh down payment?
Shyam : 2 cr after 20 years.
Ram : Meaning 7 cr total.. 😱😱
Oh.. Don’t tell me. My 75 lakh home after 20 years will not give me 7 cr. 😰😰
Do the maths before you invest!
